Car Insurance: Proof It Really Pays to Shop Around

There’s not much rhyme or reason to how and why car insurance rates vary so widely, but vary widely is exactly what they do—for the same coverage, same driver history, and so on. This is why you’ve got to go through the rigamarole of getting multiple quotes.

In a shopping investigation reported on by the SF Chronicle, one married couple was quoted prices from 17 insurers that ranged from $1,422 a year (from Geico) to $3,651 a year (from California Casualty). Most of the big-name insurers offered rates over $2,000.

Shopping around for car insurance could easily save you $500 a year, maybe even a couple grand annually.

As insurers continue to adopt complex pricing systems, not everyone is seeing savings. Why the disparity? For starters, premiums vary widely by state.According to a 2007 study from the National Association of Insurance Commissioners, the average year-long policy in 2005 cost $949—ranging from a low of $664 in Iowa to a high of $1,343 in the District of Columbia.

What’s muddied the waters even further are the formulas used to set premiums for individuals. Twenty years ago most insurers sorted customers into four or five pricing tiers, based on where they lived, their age, and their driving record. Over the past decade, hundreds of variables have been added to the mix, including credit history, homeownership, and limits on past policies. Since each insurer interprets these variables differently, it’s even tougher for consumers to get a handle on the system.